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High-Speed Trading Isn't About Efficiency—It's About Cheating
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Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#22[deleted]
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#23Earlier quoted context omitted.
I worked in the industry for a little while. At this point, some companies depend on having that daily downtime. Their whole development is based around the fact that they will have guaranteed downtime. It's built right into their software stack. Trying to fiddle with this expected downtime would throw (parts of) the industry into turmoil. It's just a historical quirk, but it's probably here to stay.
Surely there are ways to get rid of it without the transition being so traumatic. For example, the change could be announced a few years prior, and the downtime could go down by an hour per year.
To put things into perspective, the company I worked for responded to bug reports by hiring a team of people whose role was to manually alter the database any time a customer reported a data problem. Dozens of times per day. In other words, instead of fixing the software, it somehow became a reasonable idea to dedicate employees to fixing the symptoms by hand. It made sense in hindsight: they were making so much money that they took the path of least resistance. Paying employees to fix the problem immediately was quicker than trying to hunt down a competent programmer to try to fix the problem without causing more problems.
The change would be traumatic no matter how long they are given to plan for it.
Oh, here's another reason I forgot to mention: You can capture huge profits by exploiting the opening and closing few seconds of the market. A huge portion of all daily trades happen within the first few and last few seconds of the day. So there's a financial incentive to leave things as they are.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#24Earlier quoted context omitted.
See, here's the thing I don't understand about liquidity: If it's so valuable for trades to execute in microseconds instead of seconds, and the stock exchanges recognize this value and provide co-location etc to enable it, why are so many stock exchanges closed for half to two thirds of the day? [1] Surely the 15+ hour shut downs are a much bigger limit to liquidity than a few microseconds here and there? There's obv…
I worked in the industry for a little while. At this point, some companies depend on having that daily downtime. Their whole development is based around the fact that they will have guaranteed downtime. It's built right into their software stack. Trying to fiddle with this expected downtime would throw (parts of) the industry into turmoil. It's just a historical quirk, but it's probably here to stay.
From a standpoint of market efficiency, I believe the weekend is a similar "test". Although, i agree that their are diminishing returns to a-synchronous opening hours.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#25The primary function of the stock market is to exchange ownership (shares) in a company. It's odd that we seem to have forgotten that. What value is there in a computer owning a stock for 10 milliseconds?
I've read elsewhere on here that the value of high-frequency trading is that it reduces transaction costs and increases liquidity in the market. I.e. it makes it easier for the humans to buy and sell at the prices they wish to buy and sell at. Assuming that's true, the question then becomes what are the costs and externalities of HFT and, in balance, are we willing to make those trade-offs? I haven't seen anything ad…
HFTs tend to add liquidity when it's least valuable, and they tend to consume liquidity when it's most vital.
For example, an analysis of the 2010 flash crash shows it was worsened by HFTs fleeing their positions once volatility increased, which is the exact time that liquidity and market-making are most valuable.
If there is any social benefit to HFT it is utterly trivial.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#26The primary function of the stock market is to exchange ownership (shares) in a company. It's odd that we seem to have forgotten that. What value is there in a computer owning a stock for 10 milliseconds?
Actually, it's arguable that among the primary functions of the markets in addition to exchanging ownership is price discovery.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#27A few immediate thoughts: Transaction volume is ultimately not the important metric--revenue is. And, following [1], it seems that the total revenue for HFT was probably around $2Billion in 2013--for a whole industry, that's not very much! Measuring transaction volume is akin to comparing shipping between Amazon and Walmart ignoring the fact that Amazon ships directly to consumers while Walmart mostly ships to large…
See, here's the thing I don't understand about liquidity: If it's so valuable for trades to execute in microseconds instead of seconds, and the stock exchanges recognize this value and provide co-location etc to enable it, why are so many stock exchanges closed for half to two thirds of the day? [1] Surely the 15+ hour shut downs are a much bigger limit to liquidity than a few microseconds here and there? There's obv…
the stock exchanges recognize this value and provide co-location etc to enable it
Not true. The exchanges charge hefty fees to colo in their datacentre. What you do with it is completely up to you. It's just more revenue as far as the exchange is concerned.
why are so many stock exchanges closed for half to two thirds of the day
In practice, this doesn't matter. When NYC closes, trading moves to Tokyo, then onto London, then back to NYC. Anything you want to trade, you can do so 24 hrs a day if you really want to.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#28A few immediate thoughts: Transaction volume is ultimately not the important metric--revenue is. And, following [1], it seems that the total revenue for HFT was probably around $2Billion in 2013--for a whole industry, that's not very much! Measuring transaction volume is akin to comparing shipping between Amazon and Walmart ignoring the fact that Amazon ships directly to consumers while Walmart mostly ships to large…
See, here's the thing I don't understand about liquidity: If it's so valuable for trades to execute in microseconds instead of seconds, and the stock exchanges recognize this value and provide co-location etc to enable it, why are so many stock exchanges closed for half to two thirds of the day? [1] Surely the 15+ hour shut downs are a much bigger limit to liquidity than a few microseconds here and there? There's obv…
Liquidity during trading hours is important because an open market with little liquidity makes it difficult to to sell and buy assets in significant quantities. Even reasonably sized transaction start having massive effects on price. Short-term price stability gets lost and what you ultimately have is a significant increase in transactions costs.
Ultimately, liquidity during trading hours is a different question from what hours the exchange is open for trading in the first place.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#29Earlier quoted context omitted.
I worked in the industry for a little while. At this point, some companies depend on having that daily downtime. Their whole development is based around the fact that they will have guaranteed downtime. It's built right into their software stack. Trying to fiddle with this expected downtime would throw (parts of) the industry into turmoil. It's just a historical quirk, but it's probably here to stay.
Surely there are ways to get rid of it without the transition being so traumatic. For example, the change could be announced a few years prior, and the downtime could go down by an hour per year.
or quote stocks in a separate "non stop" market
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#30I don't get it. The article first criticizes HFT for making markets rather than speculating, incorrectly asserting that it's somehow a tax on traders (hint: don't cross the spread if you don't want to pay the "tax"). Then it reveals that HFT does speculate - they pay people to do market research and trade on that basis, which is somehow also evil. Damned if they do, damned if they don't I guess. The authors reasoning…
> Damned if they do, damned if they don't I guess. Why can't the two be bad in their own way? It's like the mob switching from extortion to burglary, and saying, what, you didn't want us threatening people so we're not – now we're just stealing; what more do you want from us? I guess it's damned if we do, damned if we don't...
I missed the part of the article that claimed all speculation is bad.
I did not, however, miss the part of the article that explained why charging for early access to information is socially useful (it pays for the information to be gathered). But I guess if a human uses that info it's ok, while if a machine uses that info it's evil. Or something.